Decentralized trade mitigates the lemons problem

Moreno, D; Wooders, J

Decentralized trade mitigates the lemons problem

Moreno, D Wooders, J

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Publication Type:: Journal Article
Citation:: International Economic Review, 2010, 51 (2), pp. 383 - 399
Issue Date:: 2010-05-01

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Field	Value	Language
dc.contributor.author	Moreno, D	en_US
dc.contributor.author	Wooders, J https://orcid.org/0000-0002-4206-7137	en_US
dc.date.issued	2010-05-01	en_US
dc.identifier.citation	International Economic Review, 2010, 51 (2), pp. 383 - 399	en_US
dc.identifier.issn	0020-6598	en_US
dc.identifier.uri	http://hdl.handle.net/10453/15711
dc.description.abstract	In markets with adverse selection, only low-quality units trade in the competitive equilibrium when the average quality of the good held by sellers is low. We show that under decentralized trade, however, both high- and low-quality units trade, although with delay. Moreover, when frictions are small, the surplus realized is greater than the (static) competitive surplus. Thus, decentralized trade mitigates the lemons problem. Remarkably, payoffs are competitive as frictions vanish, even though both high- and low-quality units continue to trade, and there is trade at several prices. © (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.	en_US
dc.relation.ispartof	International Economic Review	en_US
dc.relation.isbasedon	10.1111/j.1468-2354.2010.00584.x	en_US
dc.subject.classification	Economics	en_US
dc.title	Decentralized trade mitigates the lemons problem	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	51	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	14 Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access
pubs.issue	2	en_US
pubs.publication-status	Published	en_US
pubs.volume	51	en_US

Abstract:

In markets with adverse selection, only low-quality units trade in the competitive equilibrium when the average quality of the good held by sellers is low. We show that under decentralized trade, however, both high- and low-quality units trade, although with delay. Moreover, when frictions are small, the surplus realized is greater than the (static) competitive surplus. Thus, decentralized trade mitigates the lemons problem. Remarkably, payoffs are competitive as frictions vanish, even though both high- and low-quality units continue to trade, and there is trade at several prices. © (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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http://hdl.handle.net/10453/15711